This popular FTSE 100 stock has just fallen. Is it time to buy?

This FTSE 100 stock was on a strong bull run, but that came to a halt Monday as it took a tumble. Is this a buying opportunity?

| More on:

The content of this article was relevant at the time of publishing. Circumstances change continuously and caution should therefore be exercised when relying upon any content contained within this article.

Compass pointing towards 'best price'

Image source: Getty Images.

To say Burberry (LSE: BRBY) shares have been hot in 2021 would be no exaggeration. By market close on Monday, the FTSE 100 fashion giant’s share price had gained more than 25% since the start of the year. That’s more than twice the 9.5% managed by the index itself.

But if the wheels haven’t come off, at least one of them looks wobbly. On Monday, Burberry shares slumped by 8.7%, on the news that chief executive Marco Gobbetti has quit after five years in the job. Gobbetti will, apparently, move to Italy at the end of the year. The company says it is to be closer to his family, and has not revealed what his new job will be.

5 Stocks For Trying To Build Wealth After 50

One notable billionaire made 99% of his current wealth after his 50th birthday. And here at The Motley Fool, we believe it is NEVER too late to start trying to build your fortune in the stock market. Our expert Motley Fool analyst team have shortlisted 5 companies that they believe could be a great fit for investors aged 50+ trying to build long-term, diversified portfolios.

Click here to claim your free copy now!

As I write on Tuesday, Burberry has picked up a percent or so. It’s still ahead of the FTSE 100 in 2021 too. And Burberry shareholders have enjoyed a pretty good return in recent years. So I don’t see any major disaster unfolding.

Burberry did crash hard in the early days of the 2020 stock market crash. But a strong 12-month gain since last summer, of 35%, has brought the shares back to around their pre-pandemic level. And over the past five years, we’re looking at a share price rise of 78%. During that same period, the Footsie managed just 7.5%.

So is this a buying opportunity? Well, given the long-term share price performance, Monday’s fall is really not a big deal to me. The obvious buying opportunity was back in the first couple of months of last year’s crash. But back then, almost every stock in the FTSE 100 was a buy. Still, looking over the past couple of years, Burberry could look cheap.

A volatile few years

The share price, though it’s been a bull run, has still not regained its January 2020 levels. Or its July 2019 high. Oh, and it’s still lower than in August 2018. And we’ve had takeover speculation too, so there must be a chance that could prove a winner for today’s investors.

I’ve generally liked Burberry over the years, but a few things give me reason for caution right now. One is that its share price is volatile. Well, not just the share price, but the sentiment driving it. And that sentiment might be cooling again. Only last week, HSBC downgraded its stance to Hold, suggesting that the share price is already high enough to cover the positives.

Then there’s the valuation itself. Based on the latest forecasts, Burberry shares are trading on a forward price-to-earnings ratio of around 25. That’s well ahead of the long-term FTSE 100 average. Growth shares often do command high valuations, though.

Better FTSE 100 options?

Forecasts indicate earnings growth of approximately 14% this year. But how much of that is actually just recovery? And how much is cyclical? If that 14% represented a steady long-term potential set to be repeated year after year, I’d fully support a strong valuation. And I’d very likely buy at today’s price.

But right now, I’m torn. I do envisage long-term growth. But I also see the shares as maybe a bit toppy now. Even with that, I might still be tempted, except that I see better FTSE 100 bargains out there at the moment. I’ll wait and see.

FREE REPORT: Why this £5 stock could be set to surge

Are you on the lookout for UK growth stocks?

If so, get this FREE no-strings report now.

While it’s available: you'll discover what we think is a top growth stock for the decade ahead.

And the performance of this company really is stunning.

In 2019, it returned £150million to shareholders through buybacks and dividends.

We believe its financial position is about as solid as anything we’ve seen.

  • Since 2016, annual revenues increased 31%
  • In March 2020, one of its senior directors LOADED UP on 25,000 shares – a position worth £90,259
  • Operating cash flow is up 47%. (Even its operating margins are rising every year!)

Quite simply, we believe it’s a fantastic Foolish growth pick.

What’s more, it deserves your attention today.

So please don’t wait another moment.

Get the full details on this £5 stock now – while your report is free.

Alan Oscroft has no position in any of the shares mentioned. The Motley Fool UK has recommended Burberry and HSBC Holdings. Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors.

More on Investing Articles

man in shirt using computer and smiling while working in the office
Investing Articles

Is Scottish Mortgage Investment Trust now a bargain growth stock?

The Scottish Mortgage Investment Trust share price has plummeted nearly 50% from its 52-week high. Is this a great opportunity…

Read more »

A couple celebrating moving in to a new home
Investing Articles

2 key stock picks for reliable passive income

I’m looking at stocks that can deliver reliable passive income to complement my growth picks, and I think I’ve found…

Read more »

A Rolls-Royce employee works on an engine
Investing Articles

In penny stock territory, is the Rolls-Royce share price set to soar?

The Rolls-Royce share price has sunk recently, falling into penny stock territory. But with flying hours recovering, is it too…

Read more »

Hand of person putting wood cube block with word VALUE on wooden table
Investing Articles

Lloyds shares drop 20% in 4 months. Should I buy now?

Lloyds shares have lost a fifth of their value since peaking on 17 January this year. But after rebounding from…

Read more »

Warren Buffett at a Berkshire Hathaway AGM
Investing Articles

As the stock market recovery stalls, should I wait to buy?

Has the stock market recovery run out of steam? If so, what does that mean for our writer's portfolio? Here…

Read more »

Diagonal chain made of zeros and ones. Cryptocurrency and mining.
Investing Articles

At 55p, is the Argo Blockchain (LON:ARB) share price too cheap to miss?

With a low P/E ratio and strong financial results, could the Bitcoin miner be good value for money?

Read more »

macro shot of computer monitor with FTSE 100 stock market data in trading application
Investing Articles

Here are 2 recession-proof FTSE stocks!

In the face of current economic uncertainty and fears of a looming recession, this Fool identifies two recession-proof FTSE stocks.

Read more »

British Pennies on a Pound Note
Investing Articles

Here is 1 penny stock primed to benefit from the construction boom!

Jabran Khan delves deeper into a penny stock that he believes could benefit from the construction boom, and explains why…

Read more »